CIWMB Board Meeting - Item 10 (Presented at the Strategic Policy Development Committee)

1. CIWMB Board Meeting - Item 10(Presented at the Strategic Policy Development Committee) Discussion of Possible Adjustments to the Recovery and Recycling Payment Rates and the Electronic Waste Recycling Fee within the Covered Electronic Waste Recycling Program April 22, 2008 www.eRecycle.org

2. This item will cover: Recap of program growth to date Preliminary findings from 2007 Net Cost Reports Summary of DOF validation project Discussion of industry business practices Analysis of fund condition / financing considerations Update on future uncertainties Open discussion But first…

3. Handling Electronic Waste In CA Electronic waste is hazardous waste Includes covered electronic waste (CEW) May be managed as universal waste Presently two categories: CRT (cathode ray tube) materials Universal waste electronic devices “CRT material handler” means any person who generates, accumulates, stores, treats, or recycles any universal waste CRT material.

4. Handling Electronic Waste In CA DTSC regulates universal waste handling Notification, reporting, inspections, etc CIWMB only pays approved CEW recyclers Recyclers obligated to pay approved collectors Collectors might compensate handlers Artificial value of CEW does create regulatory and compliance challenges

5. Electronic Waste Recycling Act Established system to pay for the recovery and recycling of CEW Only CEW from CA sources are eligible Must be recycled (cancelled) in CA CIWMB sets payment rates to cover average net costs Payment system is funded by fees assessed on consumers of new covered electronic devices (CED) DTSC determines what constitutes a CED CIWMB determines fee structure to maintain solvency

6. CEW Payment System

7. Revenue, Payments & Volumes FY 2004/05 - $31 million $11.4 million claimed (~24 million lbs) FY 2005/06 - $78 million* $45.9 million claimed (~95 million lbs) FY 2006/07 - ~$78 million ~$75 million claimed (>150 million lbs) FY 2007/08 - ~$83 million projected ~$105 million projected (>210 million lbs)

8. (Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

9. (Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

10. Financial Considerations Fund Condition: At current rates, depletion in FY 08/09 CIWMB has authority to make adjustments Revenue Source: Current $6, $8, or $10 fee on retail CED sales List / nature of CEDs will change over time Cost Demands: CIWMB, DTSC, BOE operations Recovery and Recycling Payments ($.48/lb)

11. Payment Rate Considerations CIWMB must reconsider “payment schedule” on or before July 1, 2008 Rates should cover the average net cost for a collector to collect, consolidate, and transport, and for a recycler to receive, process, and recycle, covered electronic wastes. Net Cost Reports inform CIWMB Difficult to compare enterprises

12. Net Cost Reporting Approved participants must submit annual reports as/if directed by CIWMB Latest report was due March 1, 2008 Compliance improved CIWMB disciplining violators Preliminary analysis of raw 2007 data Trend of decreasing costs continued

15. Comparison of Weighted Average* Net Costs (cents/pound) * The weighted average reflects the overall industry cost, calculated as if the industry operated as a single organization – i.e., by dividing the total reported costs by total pounds for all participants in the study sample. By its nature, this measure is affected by the costs of larger operations more than smaller ones.

16. Net Cost Report Validation Confidence in reported costs? CIWMB retained DOF audit services Used agreed upon procedures Determined if available documentation supported reported costs Targeted range of business sizes, models, and regions Rated subjects using three-tiered scale Results mixed, but encouraging… Refer to Attachment 3

17. Net Cost Report Validation Dual entities (collector/recyclers) tended to score well in validation Records supported reported costs Applied to both collection and recycling activities Stand-alone collectors’ performance depended on focus of enterprise Handling that was incidental to broader activities tended to score poorly Handling that was primary focus of enterprise tended to score well

18. Qualitative Industry Survey Program staff contacted participants 197 collectors contacted, 146 responded 37 recyclers contacted, 26 participated Mean payment to collectors: $.22/lb Some recyclers paying over $.30/lb Most collectors do not pay sources Most do not charge for extra services Most are not charged for service above regulatory basics

19. Qualitative Industry Survey What governs business transactions? Agreements address pricing, packaging, transportation, labor, non-compete, other supplies/support, etc. Written contracts Verbal agreements No agreements Non-CEW payment: Highly variable Evolving business climate

20. Revenue Considerations Program funded by Electronic Waste Recycling Fee Currently $6, $8, or $10 assessed on CEDs CIWMB has obligation to adjust fee for fund solvency Statute establishes adjustment factors Must be done on or before August 1st

21. Revenue Considerations Fee adjustments will be necessary! Pace of CEW recovery has outstripped funds Degree & structure of adjustments will be dependent on need & trends Program growth, payment rate will affect need Evolving mix of CED size categories

22. Revenue Considerations Historical total CED sales: 2005 – 9.9 million units 2006 – 10.6 million units 2007 – 10.1 million units Allocation of CED sales in size categories: 2005 – 23% 72% 4% 2006 – 24% 67% 8% 2007 – 25% 64% 11%

23. Revenue Considerations Model assumptions: Loan of ~$40 million (repaid by late 2010) CED sales volume and size allocations constant Average revenue per CED sold Current average revenue is ~$7.64 per CED sold Aiming to remain solvent for two-plus FYs For discussion purposes only!!!

24. Model 1: • No change to recycling payment rate ($.48/lb) • Assumes program growth of ~4 million pounds per quarter • Raise E-Waste Fee to $18.60 average revenue per CED sold

25. Model 2: • Change to recycling payment rate ($.40/lb) • Assumes program growth of ~4 million pounds per quarter • Raise E-Waste Fee to $15.60 average revenue per CED sold

26. Model 3: • No change to recycling payment rate ($.48/lb) • Assumes program growth of ~2 million pounds per quarter • Raise E-Waste Fee to $15.60 average revenue per CED sold

27. Future Uncertainties Latest on DTV Broadcasting Transition Consumer Electronics Association estimates DTV transition will result in only 15 million discards thru 2010 48% of OTA households surveyed plan to get converter box and use existing TV Over 10 million converter box coupons have been requested from NTIA by over 5 million households

29. Summary Several key factors to consider Program growth continuing; may be slowing? Cost of recovery and recycling less than payments Looming fund depletion Future discard rate unclear CIWMB has authority to make adjustments Payment rate adjustment to better reflect costs Will slow fund depletion May also slow CEW recovery; impact participants Fee adjustment must cover shortfall Ability to adjust annually allows flexibility and prudence

30. Next Steps Program will further evaluate need and options for payment rate adjustments Anticipate returning to Board in May for consideration of rate adjustments Program will refine models to assess impacts of fee adjustments Anticipate returning to Board in June for consideration of fee adjustments

31. www.ciwmb.ca.gov